What Is The Risk Of Taking A Loan From A Licensed Money Lender?

Need some financial help? If the answer is yes, you may have thought of getting a loan. 

Consequently, the question of what is the risk of loaning from a licensed money lender may have popped up in your mind. 

After all, most people are likely to find the issue of how to settle a money lender a challenge. 

Before we speak on the potential risks of taking money from a legal money lender in Singapore, it is prudent to discuss some of the important issues involved in taking a loan in Singapore. 

First, let’s start with a common concern among those who are planning to take a loan in Singapore.

What To Consider Before Taking Up A Loan

Before you take a loan, you can try contacting various government or social service agencies for help. 

But if that doesn’t work out, you can consider getting a loan from a licensed money lender. But first, consider these points:

1. How To Tell If A Money Lender Is Licensed

The first thing to do is check whether the money lender is licensed or not. 

You can look up the list of licensed money lenders from the Registry of Moneylenders that is found in the Ministry of Law website. 

If the money lender is not in the Registry, there is a likelihood that the firm is an unlicensed or illegal lender, also called a loan shark, in which case you should drop this lender immediately.

Remember that it is required by law that all licensed money lenders in Singapore have offices where clients can visit them to collect loans.

2. Are You Able To Abide By The Terms Of The Loan?

Before you decide to take a loan from a licensed money lender in Singapore, see if you are comfortable with the loan’s terms and conditions. 

Different money lenders have different terms and conditions, so feel free to shop around for a money lender with the best rates. 

However, it is important to check whether you agree with all the terms and conditions pertaining to the loan you are taking from a money lender. 

Remember that failure to comply with any one of the terms and conditions would have consequences. 

For instance, you may lose your property if you used it as collateral for a secured loan.

Accordingly, Singapore’s laws stipulate that licensed money lenders explain all their loan terms and conditions in a language the clients understand. 

It is important to read every word of the terms and conditions, especially the contract terms, loan repayment schedule, licensed money lender interest rate, as well as any other fees applicable to the loan.

Consider all the terms carefully before you agree to take up the loan. 

The law permits money lenders to lodge a case against you in the event you fail to repay the loan. 

Depending on what is stated in your loan contract, a licensed money lender may seek the power of attorney to sell your property to recover the loan. 

3. How Much Can You Borrow From A Licensed Money Lender?

For a secured loan, you can get any amount from a licensed money lender. 

However, it is not the case with an unsecured loan. The law is a bit strict with the latter.

Therefore, if you are intending to get an unsecured loan, you may have to check with different licensed money lenders.

The amount you borrow depends on two things: your annual income and citizenship (Singapore citizen, permanent resident or foreigner). 

Here is a breakdown of how much you can borrow from a legal money lender in Singapore:

4. Interest Rates That Licensed Money Lenders Can Charge

From 1 Oct 2015, all licensed money lenders in Singapore are required to charge an interest rate not exceeding 4% per month. 

That means, if you take a loan of $10,000, you are required to pay $400 in interest per month. 

The good thing about this cap is it applies regardless of the borrower’s monthly income and whether the loan is secured or not.

You will still be required to pay an interest rate of 4% per month even if you repay your loan late. This is important when considering what is the risk of loaning from a licensed money lender. 

5. Fees That Licensed Money Lenders Can Charge

Since 1 Oct 2015, licensed money lenders are only required to charge the following fees:

• An admin fee that does not exceed 10% of the principal amount
• A fee that does not exceed $60 each month for late loan repayment
• Any other amount as ordered by the court upon a successful petition by the money lender in a bid to recover the loan 

6. How To Tell If The Advertisement Is From A Licensed Or Unlicensed Money Lender

The revised law regarding advertisements, which took effect on 1 Nov 2011, allows licensed money lenders to advertise their business only on three channels:

• Print or online consumer or business directories 
• Website belonging to the money lender
• Advertisements (e.g. posters) placed on the money lender’s premises 

Note: With the passing of this law, it means that any other advertisement such as email, SMS, flyers, or calls is against the law – and probably not sent by a licensed money lender.

Avoid these unlicensed money lenders by reporting them to the Registry of Moneylenders via 1800-2255-529. 

What To Prepare Before You Take A Loan

Now that you know about various licensed money lender interest rates, let’s look at some of the important documents you need to prepare before you take a loan. 

You do not need to visit the lender to present these documents as most of them can be submitted electronically.

For personal loans, licensed money lenders in Singapore may require you to present the following documents:

1. Loan Application

The first document you need is the loan application form as provided by the licensed money lender. 

In the form, indicate the amount that you require and why you need the loan. 

2. Proof Of Identity

The money lender needs to know who you are by receiving verification of your identity. 

A registered money lender in Singapore will need the following documents for proof of identity:

• NRIC
• Passport (for foreigners) 
• Proof of income 
• Proof of employment 

3. Proof Of Address

You need to provide your money lender with your address by bringing along a recent copy of your utility bill. 

That way, the lender will know where to look for you in case you are unable to pay the money lender in Singapore.

However, for a business loan application, you need these five main documents:

• Your Accounting and Corporate Regulatory Authority (ACRA) profile
• The latest Credit Bureau Singapore (CBS) report
• Latest Notice of Assessment (NOA) report
• Your company’s latest financial statement
• Your company’s bank statements for the last six months 

When applying for a home loan in Singapore, here are the documents you need to prepare before you apply for a loan:

For New Purchase

• NRIC 
• Latest CPF OA statement
• HDB printout
• Latest Rental Income Statement
• Latest all credit statements
• IRAS Property Account Summary
• Computerised payslips for three months (for employees and the self-employed)
• CPF contribution receipts (employees and the self-employed) for the last 12 months 
• Notice of Assessment (employees and the self-employed) for the last 24 months 

For Refinancing & Cashout

• NRIC 
• CPF property withdrawal statement
• Title deed belonging to a fully unencumbered property or outstanding loan statement from bank
• HDB printout
• Latest credit statements
• Original letter of offer (page 1 and 2)
• Latest rental income receipts if any
• IRAS Property Account Summary
• IRAS Property Portfolio
• Computerised payslips for three months (for employees and the self-employed)
• CPF contribution receipts (employees and the self-employed) for the last 12 months 
• Notice of Assessment (employees and the self-employed) for the last 24 months 

When Should You Take A Loan From A Licensed Money Lender Instead OF A Bank?

As it were, there are times taking a loan from a licensed money lender is advisable instead of taking a loan from a bank. 

Here are situations that warrant you to take money from a licensed money lender instead of a bank:

Registered Money Lenders Offer Faster Loan Approval

If you are facing an emergency, taking a loan from a licensed money lender would be the ideal thing to do than going to the bank. 

While most banks in Singapore take up to 14 days to process and approve your loan, licensed money lenders can complete the whole process within the same day. 

In fact, some licensed money lenders can give you a loan in 30 minutes. 

When You Are Worried The Bank Might Reject Your Loan Application

It is known that banks have stringent requirements. 

For instance, if you do not have a stable monthly income, do not earn at least $20,000 a year or possess a history of bad credit, most banks will deny you a loan.

Licensed money lenders, on the other hand, require that you be employed and that you have a clean loan repayment history for you to get the loan.

If You Do Not Have Collateral

Banks often require you to pledge an asset as collateral before you get a loan. 

Licensed money lenders do not need collateral. This is even as some of them offer secured loans.

What to Do Once Your Loan Has Been Approved

Once your loan has been approved, check that the principal amount given to you is correct. 

Make sure the money lender has only charged you an admin fee that does not exceed 10% of the principal amount.

If you are still worried about how to settle the money lender or what to do if you are unable to pay the money lender in Singapore, start to plan how to repay the loan now.

You should also ensure you keep the following documents in the safe place:

• A copy of the loan contract
• Copies of all receipts and accounts
• Receipts for each payment you make towards the repayment of the loan
• A statement of accounts (usually issued half-yearly) 
• Relevant documents pertaining to the loan

You Can Manage The Risks Of Dealing With A Licensed Money Lender

So what is the risk of loaning from a licensed money lender? 

There are no major risks of dealing with licensed money lenders because the Singapore government is regulating their operations.

However, because licensed money lenders approve loans more quickly than banks, you can expect to pay a higher interest. 

You will also be required to repay your loan within a short time as loans from licensed money lenders often come with short tenures. 

So if you were to compare licensed money lenders with banks, you would realise that stringent as they may be, banks offer a longer repayment tenure. 

This helps borrowers to feel less of a pinch of paying off the loan.

If you are looking for a licensed money lender in Singapore, CreditMaster is a good choice. 

Our dedicated staff are committed to helping you identify the right loan for your needs. 

Contact us today or apply for a loan now.